Prior to opening an account for any new customer, a registered representative must complete and sign a new account form. Account ownership is divided into five main types:

Individual

Joint

Corporate

Trusts

Partnership

The registered representative should try to obtain as much information about the customer as possible. The representative should obtain:

Full name and address

Home and work phone numbers

Social security or tax ID number

Employer, occupation, and employer’s address

Net worth

Investment objectives

Estimated annual income

Bank/brokerage firm reference

Whether the customer is employed by a bank or broker dealer

Any third-party trading authority

Citizenship

Legal age

How account was obtained

Whether client is officer, director, or 10% stockholder of a publicly traded company.

All new accounts must be accepted and signed by a principal of the firm. The principal must accept the account in writing for the firm either before or promptly after the first trade is executed. The principal accepts the account by signing the new account card. The representative who introduced or who will manage the new account card must be noted on the account.

The customer never has to sign anything to open a new cash account. Some firms have the customer sign a customer agreement when they open a new account, but this is not required. The customer agreement will state the policies of the firm and will usually contain a pre-dispute arbitration clause. The pre-dispute clause requires that any potential dispute arising out of the relationship be settled in binding arbitration. The pre-dispute arbitration clause must be presented in a certain format and include:

A disclosure that arbitration is final and binding

A disclosure that the findings of the arbitrators are not based on legal reasoning.

The discovery process is generally more limited than the discovery process in a legal proceeding.

The parties are waiving their right to a jury trial

The customer must be provided with a copy of the pre-dispute clause and must verify its receipt with a signature.

A disclosure that a minority of the arbitration panel will be affiliated with the securities industry.

If the pre-dispute clause is contained in the customer agreement, there must be a highlighted disclosure just above the signature line.

A firm may also have the customer sign a signature card. A signature card will allow the firm to verify the customer’s written instructions that are sent in to the firm or the fund sponsor. A copy of the information collected on the customer’s account must be sent to the customer within 30 days of account opening or with the next statement. Firms must also reconfirm the customer’s information no later than 36 months from the time the information was last sent to the customer. The information must contain the customer information that was collected at the time the account was opened, as well as the definitions of the terms used to describe investment objectives. Any changes in the customer’s investment objectives, name, or address must be confirmed within 30 days or when the next statement is sent. Customers who do not wish to disclose financial information may still open an account if there is reason to believe that the customer can afford to maintain the account. All registered representatives should update the customer’s information regularly and note any changes in the following:

Address

Phone number

Employer

Investment objectives

Marital status

Registered representatives are also required to maintain an accurate and up-to-date listing of all of their customer’s transactions and investment holdings.

Holding Securities

When an investor opens an account, they must decide where they want their securities to be held. The following methods are available:

Transfer and ship

Transfer and hold in safekeeping

Hold in street name

Transfer and Ship

Securities that are to be transferred and shipped will be registered in the customer’s name and will be sent to the customer’s address of record.

Transfer and Hold in Safekeeping

Securities that are to be transferred and held in safekeeping will be registered in the customer’s name and will be held by the brokerage firm. The broker dealer may charge a fee for the safekeeping of the securities. Customers may now elect to hold securities registered in their name electronically in book enter form through the Direct Registration System. The DRS system offered through the depository trust corporation will allow investors to hold their securities on the books of the issuer or the transfer agent. Investors who hold securities with the DRS will receive a statement from the issuer or transfer agent.

Hold in Street Name

Securities that are held in street name are registered in the name of the brokerage firm as the nominal owner of the securities and the customer is the beneficial owner. Most securities are held in this manner to make transfer of ownership easier.

Also at this time, the customer will decide what they want to do with the distributions from the account. Investors may have the distributions sent directly to them or they may have them reinvested or swept into a money market account.

The Depository Trust Company / DTC

The DTC is a centralized securities depository that acts as a national clearinghouse for the settlement of trades in DTC eligible securities. DTC transfers securities on a book entry or journal entry basis. DTC eligible securities include: